Mastering the lean start-up model with Pathfinder’s Bernhard Kappe

As the life cycle of products and services continues to accelerate, the need for innovation is increasing. Innovation is a necessary catalyst to growth in all types of business: as society, laws, technology and competition changes, the conditions that allow you to successfully sell a product also change.

Startups are all too familiar with the risk associated with innovation and have mastered how to innovate with a small budget while eliminating risk and maximizing returns. Last night, 1871 invited Bernhard Kappe, Founder and CEO of Pathfinder, to share the secrets they have discovered and explain how large companies can successfully innovate using the lean startup method.

Just what is the lean start-up method? It’s a set of practices for helping entrepreneurs increase their odds of building a successful business. The data-driven process helps to reduce risk through hypothesis testing and helps businesses find a scalable business model that works for them.

Here are Kappe’s tips for enacting the lean start-up method:

Recognize the riskNew product development is risky: 9 out of 10 new products fail because it is impossible to create an initial business plan that nails buyer projections. To lower this risk and maximize returns you need to interact with the consumer. Interactions like this change everything. “There are a lot of assumptions that you have. Because of that, what you end up building looks completely different than what you started with,” Kappe said.

Take the time to learnWhen marketing a recognizable product you have the benefit of an existing business model. A new product means new problems and a business plan composed only of hypothesis and assumptions. Figuring out the product and problem before the execution helps you validate hypothesis, know where your money will go and create a scalable, executable business.

Do not scale prematurelyA business plan built on a hypothesis is likely to have many invalid assumptions that make scaling prematurely a bad idea. Kappe compares changing a business model at scale to moving a big ship. “Since you already have a lot of people moving in a certain direction you are not as agile and you cannot move as fast. Plus you are burning a whole bunch of fuel (money)—it is very difficult,” he said. On top of this, you have more pressure to succeed because of the large amount of money you have already wasted.

Test at the sourceMost of the risks you are dealing with when creating a new product come from the customer and the market. Getting out of the office and talking to these potential customers helps you to acquire a deep understanding of their needs. Remember, relying on the opinion of experts for a new product that does not currently exist on the market makes no sense. Combining the knowledge and feedback you gain at the source will help your product fit in the market before splashing out on large marketing campaigns, drastically lowering your cash needs, wasted time and effort.

Start with a minimal feature setMore features do not equal a better product. Many developers add additional features in hopes of attracting a broader audience, a tactic that tends not to work. “Most people do not want dozens of features. They want the right ones that solve real problems and they want them executed really, really well” Kappe said. Companies that can figure out what those keys features are and add to them over time tend to do a lot better.

Figure out what is nextThe post-launch goal is to reduce customer acquisition costs by testing new marketing channels and adding beneficial features to improve the value for the customer. Doing this post-launch will help to foster loyalty behaviors and decrease customer turnover.

To transfer the lean start up model to a large enterprise, Kappe recommends enacting a separate innovation team and putting them in charge of the ‘four P’s’: pivot (changing your hypothesis, going back to validate it,) persevere (keep optimizing,) punt (kill a project when it needs to be killed) and promote (have the power to move a growing project up a stage in investment levels). To ensure success in a larger company, Kappe says this team should have a senior sponsor who is committed to the long-term investment that disruptive innovation requires as well as a visionary entrepreneur and UX developers who understand agile development.